Performance was temporarily under pressure, and sales of major mineral products declined
Recently, the company released its 2023 annual report and its quarterly report for '24. In 2023, the company achieved operating income of 2,254 billion yuan, a year-on-year increase of 19.92%; realized net profit of 148 million yuan, a year-on-year decrease of 59.41%; and realized net profit without deduction of 140 million yuan, a year-on-year decrease of 60.98%. The main reason for the sharp decline in net profit is that in 2023, Jinshan Mining's mining license was renewed and equity payments were added; Jinshan Mining underwent technological transformation and the new Guojin Guobin plant was put into use in mid-late September 2023, leading to a year-on-year decrease in silver ingot and gold production; zinc metal prices fell sharply compared to the same period last year, metal grades declined in individual mining sections, and unit production costs increased; in addition, the market price of superimposed nickel metals intensified, and the environmental protection business situation of the gold industry fell short of expectations.
In Q1 '24, the company achieved operating income of 263 million yuan, a year-on-year decrease of 6.27% and a year-on-month decrease of 64.90%; realized a net loss to mother of 0.09 million yuan, a year-on-year decrease of 153.98% and a year-on-year decrease of 162.45%. The company's mining resources are mainly concentrated in the central part of the Inner Mongolia Autonomous Region. Affected by climatic factors, the company had almost no output in the first quarter. The company's profit for the first quarter mainly came from inventory sales that had not been shipped the previous year.
Sales of major mineral products declined, dragging down revenue. In 2023, sales of lead powder (containing silver), zinc powder (containing silver), silver ingots and gold were 29865.83 tons/56569.81 tons/36.62 tons/148.02 kg, respectively, with year-on-year changes of -16.87%/+1.46%/-54.17%/-40.82%, respectively. The decline in sales volume of silver ingots and gold was mainly due to technical modifications carried out by Jinshan Mining and the new Guojin Guoyin plant being put into use in mid-late September 2023, leading to a year-on-year decrease in silver ingot and gold production.
Construction of key mining projects is progressing in an orderly manner
In 2023, Dongsheng Mining, a second-tier holding subsidiary of the company, actively promoted mine development and construction. In August 2023, Dongsheng Mining obtained approval from the Inner Mongolia Development and Reform Commission for the 250,000 tons/year mining project for the Bayanula Silver Polymetallic Mine; in November 2023, Dongsheng Mining obtained an administrative license from the Forestry and Grassland Administration of the Inner Mongolia Autonomous Region on the 250,000 tons/year use of woodland for the 250,000 tons/year mining project in Bayanura Silver Polymetallic Mine and approved the expropriation and use of grassland.
Increase resource reserves and acquire Caiyuanzi copper and gold mine
In 2023, the company invested in Honglin Mining by adding registered capital from Honglin Mining and achieved control over Honglin Mining. The capital increase price was RMB 300 million. After the capital increase was completed, the total registered capital of Honglin Mining was RMB 255 million, and the company held 53% of Honglin Mining's shares. The mining rights and related assets of the Sichuan Honglin Mining Caiyuanzi Copper and Gold Mine, located in Muli Tibetan Autonomous County, Liangshan Yi Autonomous Prefecture, Sichuan Province, are the core assets of Honglin Mining. The Caiyuanzi Copper and Gold Mine is a medium to large copper and gold mine to be produced, and there is good prospecting potential in the depths. In 2019, mining rights were obtained from exploration and transfer. The mining types were gold ore and copper ore. The production scale was 396,000 tons/year, and the mining area was 0.68 square kilometers. At present, the Caiyuanzi copper-gold mine construction project has been approved for temporary use of land, and the Caiyuanzi copper-gold mine mining and selection project has basically met the conditions to commence construction.
Baiyin has plenty of room for flexible growth, which will drive the release of the company's performance
Recently, precious metals prices have fluctuated upward. According to the latest data from the US Department of Labor, the CPI in April increased 3.4% year on year, in line with market expectations. The previous value was 3.5%; the core CPI fell to 3.6% year on year, a new low since April last year. Coupled with the cooling of inflation data, such as the number of people employed in the US non-farm payrolls, indicates a slowdown in the US economic growth rate. Overall, the high level of the gold and silver ratio continues to recover. Combined, the market unanimously expects a “soft landing” for the US economy, and there is plenty of room for elastic growth of silver.
Investment advice
We expect the company to achieve operating income of 20.62/27.31/3.360 billion yuan in 2024/2025/2026, with year-on-year changes of -8.52%/+32.48%/+23.01%, respectively; net profit to mother of 3.61/5.79/765 million yuan, up 144.25%/60.06%/32.23% year-on-year respectively, and corresponding EPS of 0.52/0.84/1.11 yuan, respectively. Based on the closing price of 13.27 yuan on June 3, 2024, the corresponding PE corresponding to 2024-2026E was 25.33/15.83/11.97 times, respectively. First coverage, giving a “buy” rating.
Risk warning:
Macroeconomics fell short of expectations, geopolitics exceeded expectations, project construction fell short of expectations, etc.